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Hedge signal from Feeder and Live Cattle futures?

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    #11
    Originally posted by errolanderson View Post

    An opinion, but if stock markets continue to plunge next week, it won't be long before the cattle board is impacted.
    Thanks Errol

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      #12
      Regarding money flow, the Dow lost almost 1080 pts on the week, almost 2/3rds of that on Friday. April live cattle futures actually closed lower on Friday following a strong Thursday.

      In my opinion, if equities have an orderly setback, money managers will take profits and look for places to put the money to work, benefiting commodities in general.

      If the selling takes on a feel of panic (in stocks), money managers will likely take profits and just hold the cash until things stabilize. That would not be helpful at all.

      At the same time, beef is considered a luxury item by traders at times of distress. Right or wrong, cattle markets take a hit psychologically when stocks have an undisciplined selloff.

      It is yet to be seen what type of correction this overdue pullback in equities will turn out to be.

      Regarding a put option, cow calf producers and backgrounders would likely want to look at a March feeder cattle put, expiring March 29th, covering 50,000lbs. A $145 strike put closed Friday just over $2/cwt, A cheaper $140 strike closed just over $1/cwt.

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        #13
        Only 110 or so days ago the DOW had just broke through 23000. No one could believe the strength in equities. Interesting that the Mar feeder cattle contract was at about 147.

        And now the sky might fall. Oh well, never get in the way of a stampede. It will be interesting to watch the markets next week.

        Thanks for your input Tech

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          #14
          Good information. 👍🏻

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            #15
            The weak closes today and the volatile downdrafts in the stock markets confirm the previously mentioned sell signals.

            My preference is still using the March Feeder Cattle $145 puts (now just over $3/cwt) or the $140 puts (now just over $1.60/cwt) for risk management purposes.

            That leaves the upside open should the negative outside forces (ie weak stocks) turn around.

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              #16
              Originally posted by TechAnalyst View Post
              Regarding a put option, cow calf producers and backgrounders would likely want to look at a March feeder cattle put, expiring March 29th, covering 50,000lbs. A $145 strike put closed Friday just over $2/cwt, A cheaper $140 strike closed just over $1/cwt.
              How many cow/calf producers do you think manage risk in this way? When the average cow herd in Canada is only 62 cows you may as well be talking in a language from another planet.

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                #17
                60 yearlings averaging 800 lbs is 48,000 lb total, basically a perfect fit for one 50,000 lb contract.

                I don't expect many producers do manage risk this way. If it's due to a lack of comfort or understanding, what a better way to see examples in real time than on a commodity marketing forum.

                Given the volatility these days, there likely are some that are interested in knowing they could spend $800 US to limit their price risk to roughly $60/hd through to March 29. All the while hoping the price insurance expires worthless.

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                  #18
                  While at a meeting recently there was a marketing presentation. It seemed mostly chart based....selling when the market moves above the top Bollinger band and buying in when it dips below the bottom Bollinger band. RSI Stochastic indicator-over bought and over sold. And a bunch of others not touched on. Puts and calls.

                  S/U was talked about. Longs and shorts. Basis, rolling, spreads, inverse and carry. You have to wonder if all the speculators have more market influence than the actual supply and demand. Once supplies are kind of known, seems to me chart based trading moves prices more than supply and demand.

                  I've heard it said volitility creates opportunity. But if you're only ever a seller of physical, and that's all you ever want to do is sell at the best price you can achieve, without all the other risk and games.....? Best yet is when "Buyers" encourage you to deliver and "stay" in the market.....effectively passing the rest of the market risk on to you....basis contracts, options. Options cost, rolling can cost.

                  I'm not saying it doesn't work and have admitted I don't have a real good handle on it.

                  As far as I'm concerned, your market power is being able to hold(not applicable to live cattle at a certain stage)and hopefully negotiate.


                  I'm kinda learning but it's getting late, and I don't know if I want to "play" anyway. It would be interesting to know what percentage of Producers trade futures and play with options. Even if I never actively trade, knowing what chart conditions move the market would be useful info.

                  Not knowing what I'm doing, I really have no desire to be trampled by bulls or mauled by bears.
                  Last edited by farmaholic; Feb 8, 2018, 22:25.

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                    #19
                    Originally posted by grassfarmer View Post
                    How many cow/calf producers do you think manage risk in this way? When the average cow herd in Canada is only 62 cows you may as well be talking in a language from another planet.
                    It's very much an American way of thinking.

                    All I can ever think when guys talk about risk management and hedging is that if they need it that badly, they are likely riding the edge anyways and any major long-term correction would bankrupt them.

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                      #20
                      Originally posted by TechAnalyst View Post
                      60 yearlings averaging 800 lbs is 48,000 lb total, basically a perfect fit for one 50,000 lb contract.

                      I don't expect many producers do manage risk this way. If it's due to a lack of comfort or understanding, what a better way to see examples in real time than on a commodity marketing forum.

                      Given the volatility these days, there likely are some that are interested in knowing they could spend $800 US to limit their price risk to roughly $60/hd through to March 29. All the while hoping the price insurance expires worthless.
                      There is the Western Livestock Price Insurance program available in the western provinces which is maybe more user-friendly and applicable to producers with smaller numbers of cattle.

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